What are Modern Control Techniques?
In the field of management, control is one of the most crucial aspects and essential tools for achieving the targets. Every management panel has some specific targets, and all the managers wish to reduce the gap between the targets that are set and the performances that are delivered through control. Many strategists and experts of the management domain have introduced several conventional and modern techniques for controlling which help in reducing the losses or risks for their businesses.
The different types of control techniques that are commonly deployed in the management circles are zero-base budgeting, network analysis, management audit, return on investment, and responsibility of accounting. We will take a brief look at these different control techniques.
A Few Such Techniques include:
1. Zero Base Budgeting
Renowned American management expert and business executive Peter Phyrr defined zero-based budgeting in 1970. Zero-based budgeting meaning is a bit different from other budgeting. The manager needs to prepare the budget and justify it from the very beginning of a base zero level. The managers have to carry the extra burden of proving how every facet of budgeting is important on his shoulders.
According to zero budget definition, the managers need to declare objectives of every activity that are going to be supervised by them. Then they can develop alternative plans as to how much they need to spend for comparatively smaller facets of every activity. These plans include the minimum amount to be spent on a project.
When these plans have been chalked out, according to the next phase of zero-based budgeting definition, the managers need to focus on ranking them according to their priorities. But the job is not finished here. These plans need to be evaluated from time to time following their implementation so that any appropriate changes can be made if necessary. This zero-based budgeting process helps in planning as well as creating an effective budget for a project massively.
2. Analysis of Network
A network is a system where a number of plans are interconnected with each other. Thus network analysis is a technique which is used to plan and control complex relationships in a business. There are two types of techniques that are usually adopted by organisations in this regard:
Critical Path: In this technique, the tasks are subdivided into smaller entities by the managers and they look to find the relationship between these entities. Then with the help of flowcharts and mapping techniques, a network diagram is constructed to understand these relations. Getting an idea about these relationships helps a lot as they can now easily understand how a change in an entity will affect the others. This leads to better and effective planning for the future and boosts the performances.
Evaluating the Programme and Review: This technique is usually used by managers to plan and control projects. This technique comprises tasks like schedule planning, creating a budget, forecasting the number of resources required for various projects as well as coming up with alternate plans to boost the performances.
This technique also requires the usage of probability and linear programming to help control management. Probability is required to measure the chances a project will be successful or not while the linear programming method is adopted to maximise the objectives of every individual who is a part of the project.
3. Management Audit
Every organisation needs to sit down at the end of the year and analyse the performances. Management audit is done for this purpose as each managerial function is assessed systematically to review their efficiency. It helps in understanding the shortcomings of the present management system and improve the performances in the future. The audit also helps in updating the existing policies of managers. Thus the coordination among various departments also increases manifold. There is no proper technique of this audit and depends on factors like skills and ethics.
4. Return on Investment
ROI is considered as one of the most useful techniques as it acts as an important measure for evaluating whether the amount of money invested can provide positive returns. Both the performances of the department and organisation can be well understood through ROI.
5. Responsibility accounting
It is a system of accounting where different sections, departments and divisions are set up as responsibility centres for carrying out the various tasks assigned to them. The head of the centre has the responsibility to meet the targets of his centre. These centres are of the following types:
Cost centre
Revenue centre
Investment centre
Profit centre
FAQs on Modern Control Techniques: An Overview
1. What is the primary purpose of 'controlling' in management, and why are modern techniques necessary?
Controlling is a fundamental managerial function that involves measuring actual performance against planned standards, identifying deviations, and taking corrective action. The primary purpose is to ensure that organisational goals are achieved efficiently and effectively. Modern control techniques are necessary because traditional methods are often insufficient for today's complex, dynamic, and technology-driven business environments. They provide more forward-looking, flexible, and accurate insights for decision-making.
2. What are the key modern techniques of controlling used in businesses today?
Modern controlling techniques focus on both quantitative and qualitative aspects of performance. Some of the key techniques include:
- Return on Investment (ROI): Measures the profitability of an investment relative to its cost.
- Management Information System (MIS): A computer-based system providing managers with the tools to organise, evaluate, and efficiently manage departments.
- PERT & CPM: Network analysis techniques used for planning, scheduling, and controlling complex projects.
- Zero-Based Budgeting (ZBB): A method where all expenses must be justified for each new period.
- Management Audit: A systematic evaluation of the overall performance and effectiveness of management.
3. How does Return on Investment (ROI) function as a modern control technique?
Return on Investment (ROI) serves as a powerful modern control technique by evaluating the efficiency of an investment or comparing the efficiency of several different investments. It is calculated by dividing the net profit by the total investment. As a control tool, it helps management to assess how well a division or a project is performing. A high ROI indicates efficient use of capital, while a low ROI can signal a need for investigation and corrective action, making it a key performance indicator for strategic control.
4. What is the importance of a Management Information System (MIS) in controlling?
A Management Information System (MIS) is crucial for modern controlling as it provides timely, accurate, and relevant information to managers at all levels. Its importance lies in facilitating effective decision-making by converting raw data into useful reports. For control purposes, an MIS helps in comparing actual performance with planned targets, highlighting deviations, and enabling prompt corrective measures. It ensures a systematic flow of information, which is the backbone of any effective control system.
5. What is the full form of PERT and CPM, and what is their primary difference?
In the context of modern control techniques, the full forms are:
- PERT: Programme Evaluation and Review Technique
- CPM: Critical Path Method
The primary difference is that PERT is event-oriented and used for projects where the time required to complete activities is uncertain (e.g., R&D projects). It is a probabilistic model. In contrast, CPM is activity-oriented and used for projects with predictable activity times (e.g., construction). It is a deterministic model.
6. Why is Zero-Based Budgeting (ZBB) considered a 'modern' technique compared to traditional budgeting?
Zero-Based Budgeting (ZBB) is considered modern because, unlike traditional budgeting which uses the previous year's budget as a baseline, ZBB starts from a 'zero base'. Every function within an organisation is analysed for its needs and costs, which must be justified for each new period. This forces managers to scrutinise all expenses, promoting efficiency and eliminating outdated operations. Traditional methods often carry forward past inefficiencies, whereas ZBB encourages a more rational, forward-looking allocation of resources.
7. In what kind of business scenario would a manager choose PERT over CPM for project control?
A manager would choose PERT over CPM in scenarios where there is a high degree of uncertainty and a lack of historical data regarding the time needed to complete project activities. PERT is ideal for one-of-a-kind, non-repetitive projects like research and development (R&D), launching a new satellite, or developing a new software product. Since the duration of tasks in these projects is unknown, PERT's probabilistic approach, which uses three time estimates (optimistic, pessimistic, and most likely), is more suitable for planning and control than the deterministic approach of CPM.
8. How does a Management Audit provide a deeper level of control than a traditional financial audit?
A Management Audit provides deeper control by going beyond financial figures to evaluate the overall effectiveness and efficiency of an organisation's management. While a financial audit focuses on the accuracy of financial statements, a Management Audit assesses the quality of decisions, policies, procedures, and the overall managerial performance. It reviews aspects like organisational structure, strategic planning, and operational efficiency to identify weaknesses and suggest improvements, thereby ensuring the long-term health and success of the entire organisation, not just its financial correctness.
